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“Cambio, cambio.” Beneath the blazing sun, dozens of currency traders are selling American currency along Florida Street, a bustling shopping street in Buenos Aires. Known as arbolitos (“small trees”), they are thriving ahead of the October 26 midterm elections in a country long used to holding the greenback.

“The best time for purchasing is currently,” states one arbolito, declining to give her identity. “[The dollar] dropped slightly but it’s deceptive – it’ll rise again.”

Similar to her, economists from all backgrounds anticipate a depreciation of the national currency once the election concludes. President Javier Milei has placed a limit on the peso to tame soaring price increases and currently it remains artificially high and foreign reserves are exhausted, causing the national economy stagnant as buyers opt for low-cost foreign goods.

Fertile Ground

The nation is a very special case. The country has frequently been racked by debt defaults and financial turmoil and its voters have been susceptible for decades to leftwing populism, in the form of the powerful Peronism, and currently Milei’s conservative populism.

The president is a textbook populist: captivating, iconoclastic, promising forceful measures to wrestle back control of the economy from traditional elites for the benefit of the people.

These defining traits are also seen in his political partner to the north, and by the UK politician, who presents himself as a beer-drinking people’s champion even though he is a privately educated former stockbroker.

Up until lately, Milei’s approach – involving widespread sell-offs and deep budget reductions – had earned praise from international lenders for helping to bring inflation under control. The programme has something in common with the policies of his political hero the former UK prime minister, who similarly viewed rising prices as a monster to be slain, regardless of the consequences.

But financial markets began losing confidence in Milei’s radical project in recent months after a shaky result in local polls and a series of graft allegations. Only massive financial intervention by the US has prevented what looked set to become a major currency crisis.

Contradictions

The 2016 referendum in 2016 arguably had some of the same logic, and its figurehead, the former prime minister, swept away concerns about economic detail with a bullish determination to implement public demand in the face of the establishment’s horror.

The Reform leader to date outlined limited plans to paper aside from a call for mass deportations, that he later seemed to adjust on the hoof. He aims to rein in the central bank, possibly replacing its head, the incumbent, with distrust toward traditional institutions as a central element of the populist package.

His fiscal plans appear to be unsettled: concerned about facing criticism for proposing reckless spending, he lately dropped a pledge for large tax cuts. His Reform party deputy, Richard Tice, said they would focus instead on reductions in government expenditure.

Labour hopes this position will enable it to portray Farage as planning to bring back fiscal tightening – an argument Rachel Reeves has made repeatedly, contrasting it with her strategy of increasing public investment.

An economics professor notes there are contradictions within the populist platform, as it stands. “Reform is funded by affluent backers calling for lower taxes and deregulation, yet also emphasizing the grievances of working people and the decline of industrial jobs,” he explains. “There is a conflict there between rich backers seeking Thatcherism on steroids, and this narrative of bringing back British jobs and reindustrialisation.”

Maintaining Control

In truth, the evidence suggests neither left nor right populists often perform poorly when faced with practical difficulties (though of course each charismatic individual claims to offer distinct solutions).

A recent paper in the American Economic Review analysed the outcomes of dozens of populist leaders, from 1900 to 2020. The study revealed that on average, after 15 years, gross domestic product per head tends to be 10% lower in nations run by populist rulers compared to similar economies under conventional leadership.

“Economic disintegration, decreasing macroeconomic stability and the decay of governance usually occur together under populist governments,” contend the researchers.

Another intriguing finding from the study, though, is despite their economic costs, populist figures are often effective at retaining office, lasting on average eight years, versus four for mainstream politicians.

In other words, it is not clear whether even if their plans crash, such leaders face immediate consequences in elections. Similar to pledges made to “take back control”, their attraction reaches beyond mundane economics.

But returning to Buenos Aires, regardless of if Milei’s populist project fails or is kept on life support through foreign assistance, the Argentine people are already bearing a heavy price.